The assessed value of some low-income housing in Lancaster County has skyrocketedÌý— more than 500% in some cases — raising questions about the constitutionality of a state law and creating a situation developers say threatens the viability of affordable housing projects.
The issue, which involves housing projects built using federal low-income housing tax credits, has pitted affordable housing advocates against the Lancaster County Assessor’s Office and begs two questions: Is assessing low-income housing differently than other property needed to make such projects feasible or does doing so violate the state Constitution?
Developers of low-income housing say the way the Lancaster County Assessor’s office chose to value the property this yearÌý—Ìýusing a market rate approach instead of an income-based model set out in state law — will be the "death knell" of such projects.
Jake Hoppe, managing partner of Hoppe Development, said it could force existing properties into insolvency and could kill new projects — including a recently announced affordable housing project his company is spearheading south of downtown.
“The absurdity of this is it could be forcing (these projects) into a market rate,†he said.
George Achola, vice president and general counsel of Burlington Capital, which owns and manages veterans housing at Lincoln’s new Victory Park, said they’re trying to serve a public purpose, by making sure veterans have homes, and the county taking issue with a law that's been in effect for nearly a decade makes it much more difficult.
“I really wish they would have thought that through before taking action,†he said. “I think this is an ill-conceived action on the part of the county.â€
Hoppe said the situation “really jeopardizes the ability to do affordable housing in Lincoln and in a broader sense it’s counter to all the efforts happening statewide to enhance affordable housing.â€
But the assessor’s office said using the formula required by a 2015 state law resulted in some of those low-income properties having an assessed value of zero or even a negative value — which would mean they pay no property taxes, pushing the burden onto others.
That law, they argue, violates the constitutional requirement that properties be valued “uniformly and proportionately†at their actual value and allows preferential treatment for just one kind of property.
The difference in values is particularly striking in a market where property values increased an average of nearly 23% and similar market-rate apartment complexes in particular have seen steep increases in recent years, said Lancaster County Assessor Dan Nolte.
Phil Hughes, an appraiser in the assessor’s office, said this isn’t just Lancaster County’s problem.
“This is a statewide issue looked at by every county in the state,†he said.
Nolte said the issue needs to be addressed by the Legislature — and the Lancaster County Board has made addressing problems with the 2015 law its top legislative priority for the coming session.
Sean Flowerday, vice chairman of the Lancaster County Board, said there’s a coalition looking for a legislative solution that will satisfy the constitutional questions and still work for affordable housing — which remains a priority for county commissioners.
“The simplest thing we need is a legislative fix. The old legislation didn’t work. There’s constitutional issues with it. Properties were coming in with zero value. Everything has value. It just doesn’t make sense.â€
The goal, he said, was never to make affordable housing more expensive.
“We truly want affordable housing to work, but it has to work with the constitution,†he said.
Several affordable housing advocates said they wish the county had contacted them to work together to find a solution.
“Instead they’ve just kind of dropped a bomb on all affordable housing projects in town and on future projects,â€Ìýsaid Chris Lamberty, executive director of Lincoln Housing Authority.
Brent Williams, president of Excel Development Group in Lincoln, said there are solutions out there. In Iowa, for example, assessors use a three-year rolling average of expenses and income to avoid the large swings.
But the case is now in the hands of the Nebraska Court of Appeals, though the Supreme Court could hear the case because of the constitutional question.
A court ruling would have statewide implications.Ìý
Here's how it got there: Earlier this year, the Lancaster County Assessor’s Office asked the Nebraska Tax Equalization and Review Commission for guidance on 21 low-income properties. They include various projects across the city, including those by private developers and those run by City Impact, Catholic Social Services, the People’s City Mission and veterans housing in the new Victory Park.
In most cases, the formula set out in state law resulted in reduced values for 2023 — including three whose values ranging from several hundred thousand to over $1 million in 2022 were reduced to zero this year, according to data provided by the county assessor. When the county used the market approach, those values ballooned to between $2.8 million to $11.5 million.
An affordable housing project called Creekside Village developed by the Hoppes in 2011 is among those involved in the appeal. The project includes duplexes and apartments and Centerpointe offers services to residents, Jake Hoppe said. Rents are $825 for a two-bedroom apartment. The rent the county used in its assessment was $1,185.
Together, all the properties that make up Creekside Village were valued at $2.3 million in 2022. Using the method set out in state law for low-income properties, the value decreased to about $1.9 million this year. When the county assessor’s office used a market rate approach, the total value of the properties increased to $14 million.
“They’re just throwing out (financial information) we’ve sent them, so we’re evaluating what we do,†HoppeÌýsaid. “At a very basic level, a five-time increase in property taxes will make our net operating income negative, which will drive this into insolvency.â€
Oatfield and Rose Whitney of Denver who are among owners of The Lexington, an assisted living facility in Lincoln that serves low-income clients, are under Medicaid restrictions as well as rent restrictions.
Their property values went from $4.5 million to $19.6 million this year. At the lower value, he said, they paid about $70,000 in property taxes. If the tax rate stayed the same —unlikely — that would balloon to $350,000, he said.
“That’s more than our income,†he said.
But the state Tax Equalization and Review Commission agreed with the county and ruled that the assessor could use a different approach because using the method set out in statute would create inequitable values.
Using actual expenses of individual properties resulted in large swings in value from year to year, the commission ruled, creating an inequitable tax burden borne by other property owners.
Initially, the assessor came up with a market value using a model of average expenses and income of all Section 42 housing, but based on testimony at the Tax Equalization and Review Commission hearing, the county felt it had to use a market rate approach, said Hughes, with the assessor’s office.
Developers appealed to the Nebraska Court of Appeals, and a number of civic and affordable housing organizations and nonprofits filed a brief in support.
The organizations include the Lincoln Housing Authority, the Lincoln Community Foundation, the Lincoln Chamber of Commerce, the Nebraska Housing Developers Association, the Nebraska Housing Resource and Neighborworks Lincoln.
Lancaster County has asked the high court to find the law violates the uniformity clause of the state constitution because it compels assessors to use a different standard than is used for all other property in the state. The only other exception is for agricultural land, which is valued at 75% of actual value — which is set out in the Constitution.
“The Nebraska Constitutional requirement that property values be uniform and proportional is the proper guiding principle that cannot be forgotten and cannot be legislated around,†the county attorney’s brief says. “Benevolent ideas (around the tax credits) do not absolve Lancaster County or this court from constitutional obligations.â€
The property at issue is called Section 42 housing, which is housing developed using federal low-income housing tax credits.
The Nebraska Investment Finance Authority administers the tax credits to developers involved in low-income housing projects through a competitive process, and the developer awarded the tax credits sells them to an investor and uses the proceeds to help pay for the project.
Generally, state law allows assessors to value property using several different processes, and many assessors use a market or sales approach — basing the value off of sales of comparable properties. They can also use an income method, by creating a model based on typical income and typical expenses, according to a county attorney’s brief filed in the appeal.
The 2015 law on Section 42 housing, however, says assessors should use actual income and expenses of individual properties and a capitalization rate determined by a state committee. The law also says the tax credits can’t be counted as income.
Developers who get tax credits enter into what’s called a Land Use Restriction Agreement, which restricts rents and residents’ income and can include additional restrictions such as providing specific amenities or supportive services to residents. Those agreements can last 30 or more years and they travel with the property — so if a landowner sells the property, the restrictions go to the new owner.
Those restriction agreements are central to the case.
Developers argue they must be taken into account when valuing the property because buyers would not pay as much for property where the rent is restricted. The county argues they are voluntary restrictions landowners enter into willingly and aren’t compulsory, as are zoning or easement restrictions.Ìý
Using the same reasoning, the county attorney’s brief argues, “a property owner with a mortgage would have a compelling argument that the market value of their home is only the equity they have in it.â€
The county also argues if the restriction agreements are considered as part of the assessment process, so should the proceeds from the tax credits.Ìý
But the affordable housing advocates argue that in passing the law eight years ago the Legislature found that safe affordable housing was a compelling state need fulfilled by the rent-restricted projects.
The law, the brief said, created uniformity for Section 42 housing because before that, assessors were using different methods that had drastically different results. The law, the brief said, results in the most accurate value of such properties.
“Without this uniformity, Nebraska’s existing affordable housing projects will be in jeopardy because they do not have sufficient profit margins to cover unpredictable spikes in property taxes and future development will be rendered infeasible because lenders and syndicators will not fund projects absent a showing that they will cash flow,†the affordable housing advocates argued in their brief.
The brief quotes heavily from various local and statewide housing studies including Lincoln’s recently adopted Affordable Housing Coordinated Action Plan, which says Lincoln and Lancaster County are suffering from a lack of available affordable housing.
Several factors — everything from construction and property costs to unpredictable property taxes — are contributing to a decline in the number of Section 42 housing projects in Lincoln, the brief says.
For such low-income tax-credit programs to continue, the rewards for developers and investors must outweigh the risks, affordable housing advocates argue in the court brief.
“Access to safe, decent and affordable housing is a compelling state interest that could be in jeopardy depending upon the outcome of this case." the brief says.